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Japan, India to Form LNG Buyers' Group

The Pair Plan to Push for Lower Prices of Liquefied Natural Gas

Japan and India agreed Monday to set up a multilateral group of buyers for liquefied natural gas to push for lower prices for the fuel, and they plan to ask other importers to join them.

Asian countries, the biggest buyers of seaborne LNG, sometimes pay five or six times more for the deep-chilled gas than do consumers of piped gas in North America, where prices have plunged because of growing availability amid a boom in production from shale deposits. In some cases, heavy energy import bills in Asia are being further inflated as a result of weakening currencies.

"LNG prices in Asia are substantially higher than those of other major consuming regions such as Europe and North America," the two countries said in a statement signed by Japan's minister of economy, trade and industry, Toshimitsu Motegi, and India's minister for petroleum and natural gas, Veerappa Moily.

"Many contracts include inflexible conditions such as destination clause, which further the market illiquidity in the Asia Pacific region," the ministers said.

The countries plan at an LNG conference being held in Tokyo on Tuesday to ask fellow importers, such as South Korea and Singapore, to join the planned multilateral joint study group on LNG. The conference will also include senior officials from producer countries including Australia, Indonesia, Qatar and Nigeria.

"For both LNG producers and consumers, the LNG price should be at [a] mutually acceptable level, considering the sustainability of the LNG market," the statement said. It said that in Asia, prices of individual supply contracts are confidential and there aren't reliable price indexes that accurately reflect the supply-demand balance.

Most LNG sold in Asia is bought under long-term contracts linked to crude-oil prices. Oil-linked prices have stayed much higher than piped-gas prices in recent years, and Japan has been prominent among countries calling for more flexible, spot-market pricing, possibly linked to U.S. gas prices. Several Asian countries have already agreed to import LNG from North America, and deliveries could start within two years.

The main gas exporters already have their own association, the Gas Exporting Countries Forum, which includes Qatar and Russia among its members, although it has acted mostly as a discussion group.

However in July, Russian President Vladimir Putin urged the group's 13 members to join forces and defend traditional long-term oil-linked gas contracts amid the growing popularity of spot-market pricing.

Speaking at a meeting of the organization, Mr. Putin said forsaking the oil-linked pricing system "may undermine the energy security of gas importers."

Referring to booming North American shale gas output, Mr. Putin said the increased supply is "not a reason for rejecting long-term contracts, or take-or-pay principles."

LNG prices have soared in Asia this summer, and utilities in South Korea and Japan increased purchases because of unusually high temperatures, rising above $18 per million British thermal units compared with around $3 in North America.

India in particular is under pressure, as the slide in the value of the rupee has caused a big rise in the cost of its dollar-denominated energy imports. In late August, India's oil minister said Prime Minister Manmohan Singh had asked him to work out a plan to cut the oil import bill by $25 billion.

Asian LNG prices "are roughly 30% higher than North American gas prices, even after factoring in the costs of liquefaction and transportation," said Hiromichi Moriyama, director of the Japanese industry ministry's international energy strategy department.

Japan is the world's largest LNG buyer, with its imports having risen during the past two years after the Fukushima Daiichi disaster in March 2011 caused the closure of most of the country's nuclear reactors. India is ramping up LNG purchases to help meet its own energy shortfall.

"North American projects will start shipping LNG as early as 2015. If their prices are lower, we may not buy expensive LNG," said Ryo Minami, who heads the oil and natural-gas department at the industry ministry.

Fuente: Wall Street Journal